The Long Island Power Authority agreed Tuesday to take on $263.5 million in new charges as trustees approved settlement of a decade-old pension dispute with National Grid.
Under the proposed agreement, LIPA will pay National Grid $91.5 million in cash and forgive a $172 million loan National Grid owed from the original Long Island Lighting Co. transaction that formed LIPA. LIPA will issue $263.5 million in new bonds through its recently formed Utility Securitization Authority to pay off the costs.
All LIPA costs are borne by ratepayers. LIPA spokesman Mark Gross said the settlement amount is already built into LIPA's budget.
The agreement "relieves us of all the obligations and uncertainty," said LIPA chairman Larry Waldman, who will step down from his post Nov. 30 after five years on the board. The current trustees met for the last time Tuesday, and a new board will be named next month.
The size of the disputed pension amount, and LIPA's willingness to accept liability for it, has changed over the years. In 2011, Newsday reported the amount in dispute exceeded $600 million, and a LIPA spokeswoman at the time said the liability was National Grid's, not LIPA's. "We do not expect any lump-sum payment" at the end of the National Grid contract, a former spokeswoman said.
LIPA has since hired an outside law firm to review National Grid's pension claims, and found them valid. It also hired a financial adviser to determine the amount.LIPA officials as recently as this summer said they believed the amount to be about $300 million. National Grid viewed it as $450 million last year, and just under $400 million this year, according to LIPA. The amount has fluctuated based largely on stock-market conditions.
National Grid said in a statement that it was "satisfied" with the settlement.
LIPA trustees also approved a $3.52 billion budget for 2014 that includes an electric rate freeze and about $900 million in new borrowing -- in part to fund improvements to the LIPA system and PSEG start-up costs.
The spending plan trims $26 million from green energy programs, although LIPA officials said they expect to meet renewable energy goals despite the cuts. But trustee Neal Lewis called the 22 percent cut to the programs "really devastating" and voted no on the budget, which was approved 8-2.
Bill Feldman, chairman of the Long Island Solar Energy Industries Assoc., an industry group, told trustees it was "a bit foolish" to cut solar programs, noting they deliver $3 in value for every dollar invested.
Peter Gollon, chairman of the Sierra Club Long Island's energy committee, urged trustees to restore the renewables budget, and questioned the need for a newly planned 750-megawatt plant by Caithness in Yaphank.
Trustee Matthew Cordaro, who also voted against the budget, called its reliance on $190 million in grants and its increase in debt "a bad start" for a reformed LIPA under new operator, PSEG-Long Island.
Trustees voted unanimously to approve the National Grid pension settlement, giving the chief operating officer authorization to settle the matter before the contract expires Dec. 31.
Chief financial officer Michael Taunton told trustees LIPA's projected 2014 debt, which will hit a record of $7.78 billion by next year's end, was necessary given the capital improvements LIPA envisions under PSEG, including new computer systems and storm fortification. Taunton, who announced he will leave LIPA at year's end, said that given the need for infrastructure improvements, the projected increase of $700 million in long-term debt is "quite an accomplishment."
LIPA also will issue $200 million in short-term bonds to prepare for the service contract with PSEG-Long Island, which will take near-total control of the local electric grid in January.
Activist Peter Maniscalco, of Manorville, took aim at the LIPA reform act itself. He charged that the law was crafted through "deceit," and suggested a pending approval by the U.S. Internal Revenue Service to allow LIPA to keep its tax-exempt status could ultimately be the deal's undoing. LIPA has said it would revert to the original, more limited PSEG contract if the IRS doesn't approve the tax-exempt status.
Maniscalco said such a scenario could "create absolute chaos if it isn't figured out now."
LIPA president John McMahon walked away from a reporter who asked him about the prospect of an unfavorable ruling by the IRS. "We'll work it out," he said.
Also at the meeting, Waldman said a U.S. attorney's office inquiry into alleged overcharges to LIPA by a longtime consultant has concluded "without action" and the matter "is closed."
The U.S. attorney's office in Brooklyn had been reviewing LIPA's contracts with consultant Navigant of Chicago since Gov. Andrew M. Cuomo's Moreland Commission, which investigated the utility's response to recent storms, found the firm charged LIPA "exorbitant" fees. The probe also examined the "revolving door" between LIPA and Navigant.
Waldman said LIPA's review of Navigant Consulting Inc.'s fees found about $88,000 in overcharges since 2007, and said the authority will dispute them. Total billings to Navigant were $42 million.
A spokesman for the U.S. attorney and a Navigant spokeswoman declined to comment.